- By Reprinted with permission of Investment Representative Celine Richardson of Ithaca's EdwardJones
- Business & Technology
Required Minimum Distributions
The rules governing withdrawals from traditional IRAs and 401(k) plans fall under the Internal Revenue Service's "required minimum distributions" (RMD) guidelines. (You aren't required to take these distributions from a Roth IRA.) Here are some of the key RMD points to keep in mind:
- Take distributions by age 70 1/2. You should begin taking RMDs in the year in which you turn 70 1/2. If you don't take your first RMD during that year, you must take it no later than April 1 of the following year. If you do put it off until April 1, you must take two distributions in one year. If you don't take your RMDs on time, you may have to pay the IRS a 50 percent penalty tax on the taxable portion of your uncollected distribution - so make sure you know your dates.
- You can take more than the minimum. You can withdraw more than the RMD, but, as the word "required" suggests, you can't withdraw less.
- You may be able to delay RMDs if you're still working. If your employer's retirement plan permits it, you may not have to take RMDs from the plan if you are still working and you are 70 1/2 or older. However, this exception won't apply if you own five percent or more of your company.
To determine your RMD, you'll need to use either the Uniform Lifetime Table, which is based on your life expectancy, or the Joint Life Table, if you have a spouse who is the sole beneficiary and who is more than ten years younger. Your tax advisor can help you make this selection.
Other Factors to Consider
How will you know the level of retirement plan distributions you should take? First, of course, you'll need to know, with a fair degree of certainty, how much money you'll need each month. Then, consider these factors:
- Social Security - The more Social Security you receive, the lower the distributions you may have to take from your retirement plans. Conversely, the less you collect in Social Security, the more you may have to take from your plans.
- Investment mix - How much you take in retirement plan distributions will also depend on how much income you have coming in from your investments held outside your 401(k) and IRA. You will want to review your portfolio to make sure it provides you with both growth and income opportunities during your retirement years.
Your financial and tax professionals can help you determine the appropriate choices when it's time to start taking distributions from your retirement plans. By making the proper moves, you can help ensure your hard-earned savings pay off for you when you need them.
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